KUALA LUMPUR (May 12): CIMB IB Research has maintained its “Neutral” rating on the timber sector and said the potential impact of a higher timber levy in Sarawak could be negative for Jaya Tiasa Holdings Bhd and Ta Ann Holdings Bhd.

In a note May 11, the research house said it had been reported that Sarawak is to hike hill timber cess payment from 80 sen to RM50 per cu m.

CIMB Research said it was negative on this news, as it will result in higher cost of production for logs of around RM49.20 per cubic metre, for timber logged from hills.

It estimates that this represents an increase of 14% in the cost of production for logs in Sarawak.

It added that the timber players may not be able to pass on the higher levy to consumers.

 “Preliminary analysis reveals that this could cut our earnings estimates for Jaya Tiasa and Ta Ann by 2 to 10%. We maintain our Neutral rating on the timber sector,” it said.

“Assuming Jaya Tiasa produces 450,000cu m of logs in 2017 and 2018, and 70% of the timber are from hill logs, we estimate the higher levy could reduce our FY6/18 net profit forecasts by 10%.

“Assuming Ta Ann produces 350,000cu m of logs in 2017 as well as 2018, and 50% of the timber are from hill logs, we estimate the hike in levy could reduce our net profit forecasts to 2.4% for FY17 and 4.5% for FY18,” it said.